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Tuesday, February 25, 2003

All Does Not Seem Well With German Banks

This doesn't look too promising. The fact they've gone so far as to come out to deny the plan seems to indicate all is far from well. After all, they are hardly likely to come out publicly and admit the problem. My response, like that of Christine Keeler in an earlier epoch: they would say that, now wouldn't they.

The European Central Bank on Monday sought to allay fears of a banking crisis in Germany amid reports that the government and senior bankers had discussed emergency measures to bail out the financial system. In a hurriedly called press conference to launch an ECB report on banking stability in the European Union, Edgar Meister, who heads the ECB's banking supervision committee, dismissed talk of a Berlin-backed bank rescue plan. Mr Meister, who also sits on the board of the Bundesbank, said he was confident Germany's beleaguered banks could "resolve their specific weaknesses on their own" without needing taxpayers' money.His comments came in the wake of a meeting at which top bankers met Chancellor Gerhard Schröder and discussed setting up a government-backed "bad bank" to take on the bad debts of the big commercial banks.German banks have taken billions of euros in loan loss provisions and seen profitability collapse, as corporate insolvencies have jumped to record levels amid the steep downturn in the eurozone's biggest economy.HVB Group and Commerzbank reported big losses for 2002 and investors fear they may face further heavy losses this year, fuelling concern over the resilience and stability of the German banking system. Mr Meister said he was not aware of any government plan for a bad bank, adding:"I don't think German banks are in a condition that they would need such a plan." He said 2002 had been very difficult for German banks and the outlook for this year was "not good either". But he insisted that neither the stability of the financial system nor bank liquidity were in question.His remarks echoed comments by Hans Eichel, the German finance minister, who said the banking system was not in crisis and denied the government was considering any emergency measures. But speculation over a bail-out plan is likely to be fuelled today by a report from credit analysts at HVB, who say the bad bank idea is "a step in the right direction". German press reports said the proposal was raised at the meeting with Mr Schröder by Deutsche Bank chief Josef Ackermann, although he insisted Deutsche itself would not take part.The HVB analysts said the plan amounted to "an admission that there are very serious challenges facing German banks", but pointed to Sweden's success in using the model to overcome a banking crisis in the early 1990s.
Source: Financial Times
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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".

Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.